No Error in Treating ₹122.31 Lakh Cash Deposits as Sales: Allahabad HC Backs AO’s Approach [Read Order]

The Allahabad High Court held that the Assessing Officer (AO) had duly examined the ₹122.31 lakh cash deposits and taken a plausible view by treating them as sales receipts. Therefore, dismissing the Principal Commissioner of Income Tax (PCIT)’s appeal, the Court determined that the assessment could not be considered erroneous to justify revision under Section 263 of the Income Tax Act, 1961.

The case concerned the assessee, Rukmani Devi Jain, who declared sales of ₹74.32 lakh with a net profit computed under Section 44AD of the Income Tax Act, 1961, for the A.Y. 2015-16. During scrutiny under Section 143(3) of the Income Tax Act, 1961, the AO examined substantial cash deposits totalling ₹122.31 lakh. The assessee explained that the deposits did not represent undisclosed sales; however, the AO disbelieved the explanation. Based on his inquiries, the AO treated the deposits as business receipts, proportionately increased the gross sales, and enhanced the assessed income by ₹3.83 lakh.

The PCIT invoked Section 263 of the Income Tax Act, 1961, alleging that the AO had failed to make an adequate inquiry and that the assessment order was erroneous and prejudicial to the Revenue. The Income Tax Appellate Tribunal’s (ITAT) Agra Bench set aside the revision order, ruling that the AO had conducted a due inquiry and adopted one of two possible views.

Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here

Amit Mahajan, Counsel for the Revenue, argued that the AO failed to conduct a deeper inquiry necessary for such high-value deposits. Therefore, according to the appellant, the PCIT was justified in invoking revisionary powers under Section 263 of the Income Tax Act, 1961 to correct an assessment order that was prejudicial to the interests of Revenue.

The High Court bench comprising Justice Saumitra Dayal Singh and Justice Arun Kumar upheld the ITAT’s decision quashing the PCIT’s revision under Section 263, holding that the Revenue failed to establish any perversity in the Tribunal’s findings. The Court observed that the Tribunal had passed its order after proper appraisal of evidence, and the Revenue did not dispute the core finding that two views were possible on treating the ₹122.31 lakh cash deposits.

Since the AO had duly examined the deposits, disbelieved the assessee’s explanation, and adopted one of the legally permissible views, the assessment could neither be termed erroneous nor prejudicial to the interests of the Revenue. Consequently, the PCIT’s invocation of Section 263 lacked jurisdictional foundation.

Thus, the appeal was dismissed.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates